Loading judgment…
Facts
The assessee claimed exemption for leave encashment received upon retirement. The Assessing Officer initially allowed it, but later restricted the exemption to Rs. 3,00,000/-, treating the assessee as an employee other than government. The assessee appealed this decision.
Held
The Tribunal noted that the CBDT, through Notification No. 31/2023 dated 24.05.2023, revised the limit for leave encashment exemption to Rs. 25,00,000/-. As the assessee's claim was below this revised limit, it was deemed eligible for exemption.
Key Issues
Whether the restriction of leave encashment exemption to Rs. 3,00,000/- by the lower authorities is justified in light of the revised limits prescribed by CBDT Notification No. 31/2023.
Sections Cited
10(10AA)(ii), 154, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI SUNIL KUMAR SINGH & SHRI BRAJESH KUMAR SINGH
ORDER PER: Sunil Kumar Singh, Judicial Member: The common question of law and fact is involved in both these appeals, hence, both these appeals are being decided by this common order for the sake of brevity and convenience. The facts of are only being narrated as under :
This appeal has been preferred by the assessee, Vijay Kumar Jain, against the impugned order dated 30.08.2022 passed in Appeal No. NFAC/2018-19/10096619 by the Ld. Commissioner of Income-tax (Appeals), NFAC, Delhi u/s. 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year (A.Y.) 2019-20, wherein the ld. CIT(Appeals) has dismissed assessee’s first appeal upholding the order dated 29.10.2021 passed u/s. 154 of the Act, restricting the allowable limit of leave encashment from assessee’s claim of Rs.7,51,755/- to Rs.3,00,000/- only.
Briefly stating, the appellant/assessee, Vijay Kumar Jain, a retiree from State Bank of India, received retiral benefits in addition to other funds, the leave encashment of Rs.7,51,755/- and claimed exemption in the Income-tax Return submitted for the relevant assessment year 2019-
While processing the return of income, the leave encashment was allowed as exempt u/s. 10(10AA) of the Act. However, subsequently, a rectification u/s. 154 of the Act was carried out by the CPC, Bengaluru vide order dated 29.10.2021, restricting the allowable amount of leave encashment to Rs.3,00,000/- only, treating the assessee as an employee other than Central/State Government.
The appellant/assessee approached the first appellate authority, but without success.
This appeal has been preferred on the ground that learned CIT(Appeals) has erred in confirming the rectification order passed u/s. 154 of the Act by the CPC, restricting the assessee’s claimed amount of leave encashment of Rs.7,51,755/- to Rs.3,00,000/- only.
The assessee did not appear on the date of hearing. Perused the records and heard learned Departmental Representative for the Revenue.
According to assessee’s written submissions referred in the impugned order, it has been emphasized that the assessee is entitled for exemption of leave encashment of Rs.7,51,755/- received at the time of his retirement u/s. 10(10AA)(ii) of the Act subject to such limit as the Central Government may, by notification in the official gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government.
Learned DR has argued that as per CBDT Notification No. SO 588(E) dated 31.05.2002, CBDT has prescribed a limit for the exemption u/s. 10(10AA)(ii) of the Act upto Rs.3,00,000/- after 01.04.1998. Learned DR has supported the impugned order.
9. The small issue involved in this appeal is as to whether Revenue/Ld. CIT(Appeals) erred in denying assessee’s claim of exemption of leave encashment of Rs.7,51,755/- u/s. 10(10AA)(ii) of the Act restricting to Rs.3,00,000/- only ?
We find that the claim of assessee relates to the assessment year 2019-20. We further find that similar question has been answered by the co-ordinate Bench of Jaipur Tribunal vide order dated 27.06.2023 passed for A.Y. 2020-21 in the case of Ram Charan Gupta vs. ITO. The relevant paras 8 and 8.1 are reproduced as under :
“8. We have heard the rival contentions and perused the material placed on record. The bench noted that the assessee relying the decision of Hon’ble Delhi High Court has issued a notice to the Union of India in the case of Kamal Kumar Kalia & Ors. Vs. Union of India & Ors in WP(C) 11846/2019 dated 08.11.2019 wherein the court has given following directions :- “8. We are however of the, prima facie, view that the grievances of the petitioner with regard to exemption limit under Clause (ii) of Section 10 (10AA) not being raised since 1998, appears to be justified. This is so because over the decades, the pay-scales admissible to government servants, and even employees of the Public Sector Undertaking and Nationalised Banks and all others have been upwardly revised, keeping in view, the financial growth in the country as well as on account of rising inflation. The last drawn salaries have increased manifold since time and notification issued under Clause (ii) of Section 10(10AA) was lastly issued, as taken note of hereinabove, on 31.05.2002. We therefore, issue notice to the respondents limited to this aspect.
Issue notice, learned counsel for the respondents accepts notice. Respondents should file counter affidavits be filed within six weeks. Rejoinder thereto, if any, be filed before the next date.”
8.1 Recently the Central Board of Direct Taxes Suomotu revised the limit for deduction u/s 10(10AA) of the Act and the revised limit now stood at Rs. 25,00,000 as specified vide notification no. 31/2023 issued by the ministry of finance. Since the leave encashment amount as claimed by the assessee is amount to Rs. 6,97,100/- which is below the revised limit of leave encashment exempt prescribed by the Board, the assessee is eligible to claim of deduction of said Rs. 6,97,100/-. Based on these observations the ld. AO is directed to allow the claim of the assessee u/s. 10(10AA) of the Act within the revised limit as prescribed. In terms of these observations the appeal of the assessee is allowed.”
Another coordinate Bench of Jaipur Tribunal vide order dated for A.Y. 2020-21 in the case of Govind Chhatwani vs. CIT(Appeals), has followed Ram Charan Gupta (supra) and held that the assessee was eligible for the claim of deduction in respect of the exemption of his leave encashment exceeding Rs.3,00,000/-, as the CBDT Notification No. 31/2023 dated 24.05.2023 has raised the limits to Rs.25,00,000/-.
It is established principle of law that a circular of CBDT, no doubt, has the force of law, can even supplant the law in case where it is beneficial to the assessee and can mitigate or relax the rigors of law. The powers of CBDT in issuing circular for general guidance are subject to two important conditions. One is that it does not entitle the Income-tax authority including the Board to issue instructions or circulars contrary to the substantive provisions of law or curtailing the relief, to which the assessee is otherwise entitled under law. The circular cannot, therefore,
5 | P a g e curtail the benefit conferred on the assessee or be contradictory to the Act. Hon’ble Apex Court in Union of India vs. Wood Paper Limited AIR 1991 SC 2049 has held that the condition regulating the computation of benefit should be interpreted liberally.
In view of this legal position, we are in respectful agreement of what has been held by the afore cited coordinate Jaipur Benches of this Tribunal as noted hereinabove. We accordingly answer the aforesaid question in favour of the assessee and against the Revenue and hold that the appellant/assessee is eligible to claim deduction of Rs.7,51,755/- in view of limits raised to Rs.25,00,000/- vide Notification No. 31/2023 dated 24.05.2023. The appeal is thus liable to be allowed.
ITA No. 187/Agr/2022 (A.Y. 2020-21):
The facts and law applicable to this appeal are similar to the facts leave encashment claimed as exempt is Rs.7,18,216/- and the assessment year is 2020-21. Our findings arrived at shall mutatis mutandis apply to this appeal also. This appeal is also liable to be allowed accordingly.
187/Agr/2022 are allowed. The Assessing Officer is directed to allow the claim of exemption of leave encashment of both the assessees u/s. 6 | P a g e 10(10AA)(ii) of the Act read with CBDT Notification No. 31/2023 dated 24.05.2023.
Order pronounced in the open court on 18.06.2025.